United States securities and exchange commission logo
May 21, 2021
Vladimir Tenev
Chief Executive Officer
Robinhood Markets, Inc.
85 Willow Road
Menlo Park, CA 94025
Re: Robinhood Markets,
Inc.
Amendment No. 1 to
Draft Registration
Statement on Form S-1
Submitted May 7,
2021
CIK No. 0001783879
Dear Mr. Tenev:
We have reviewed your amended draft registration statement and
have the following
comments. In some of our comments, we may ask you to provide us with
information so we
may better understand your disclosure.
Please respond to this letter by providing the requested
information and either submitting
an amended draft registration statement or publicly filing your
registration statement on
EDGAR. If you do not believe our comments apply to your facts and
circumstances or do not
believe an amendment is appropriate, please tell us why in your
response.
After reviewing the information you provide in response to these
comments and your
amended draft registration statement or filed registration statement, we
may have additional
comments. Unless otherwise indicated, references to prior comments refer
to our letter dated
April 21, 2021.
Amended Draft Registration Statement submitted May 7, 2021
General
1. Refer to your response
to comment 1. Please confirm whether fractional share investors
have the right to
receive confirmations, proxy statements and other documents required by
law to be provided to
security holders. In addition, please clarify your statements that the
rights of fractional
share investors with respect to voting and stock splits are substantially
similar to
whole-share investors by explaining the ways in which such rights may differ.
2. Refer to your response
to comment 3. The securities awarded through the referral
Vladimir Tenev
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program appear to constitute the disposition of securities for value
within the meaning of
Section 2(a)(3), and therefore sales for purposes of the federal
securities laws.
Regarding your analysis as to the availability of the Securities Act
Section 4(a)(3)
exemption, please provide us with any legal support for your
conclusion that the
exemption is available with respect to your referral program.
3. Additionally, regarding the related accounting for the Robinhood
Referral Program, please
revise to address the following:
please revise your disclosure to clarify when you derecognize
earned stock awards
from other current assets and provide us with citation to and
analysis of authoritative
accounting literature that supports the timing of derecognition;
please also clarify for us the authoritative literature you rely
upon to mark to fair
market value the related liability;
explain how the individual value of each individual stock reward
granted is
determined;
clarify if customers are granted whole shares or fractional shares
when the individual
stock rewards are issued;
tell us the accounting guidance you used to support the
classification of the changes
in the fair market value of the stock inventory used for the
referral program as well as
the subsequent claiming of the reward by both new customers and
referring
customers as marketing expense. We reference ASC 606-10-32-25;
and
in order to help illustrate the material effects of the Robinhood
Referral Program on
marketing expense, please include in MD&A a rollforward of the
referral program
liability for each statement of comprehensive income presented.
Please quantify
separately current period rewards, changes in estimates of
unclaimed awards for prior
periods, and reversals related to expired awards as well as
indicate the amounts
reflected as marketing expense in each period presented.
4. Please expand your discussion of the relationship and functions of RHS
and RHC to the
cryptocurrency trading platform. Your revised disclosure should
address:
whether customer cryptocurrencies are held in custody by RHC or
held by another
entity on behalf of RHC and its customers;
to the extent RHS and RHC hold customer cash in connection with a
cryptocurrency
transaction, describe in further detail the transmission of cash
from RHS to RHC;
to the extent material, describe the risks that cryptocurrency
trading may pose for the
retail brokerage given that it appears that the retail brokerage
and RHC share a
common clearing broker; and
why, as you state in the last full paragraph on page 164,
customers who only trade
cryptocurrency must maintain a brokerage account with RHF.
Additionally, please
clarify whether RHF holds customer funds in connection with
cryptocurrency
transactions and, if so, reconcile this with your disclosure that
RHF is only an
introducing broker.
5. We may have additional comments on your accounting for equity
issuances including
stock compensation and beneficial conversion features. Once you have
an estimated
Vladimir Tenev
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RobinhoodLastNameVladimir Tenev
Markets, Inc.
Comapany
May NameRobinhood Markets, Inc.
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offering price, please provide us an analysis explaining the reasons
for the differences
between recent valuations of your common stock leading up to the IPO
and the estimated
offering price.
Key Performance Metrics, page 24
6. Refer to your response to comment 12; we are reissuing our comment in
part. Please
revise note (3) to your table to quantify each asset class within your
assets under custody,
similar to what was provided within note (3) on page 118.
7. Please revise your tabular presentation to include annual average
revenues per user for the
periods presented and provide a footnote explaining how the amounts
are computed.
Risk Factors
Because a majority of our revenue is transaction-based, page 32
8. Given the length of this revised risk factor, please revise into
separate risk factors or,
alternatively, consider sub-captions to more clearly convey the
discrete risks related to
your dependence on transaction-based revenue.
Risks Related to Our Industry, Customers, Products and Services
If we fail to retain existing customers or attract new customers, page 50
9. Please place the last full paragraph of this risk factor in context by
quantifying the
increase in ACATS customer transfers in the first quarter 2021
compared to historical
periods.
Risks Related to Our Cryptocurrency Products and Services
The loss, destruction or unauthorized use or access of a private key, page 67
10. We note your disclosure on page 118 regarding the growth in
cryptocurrency assets under
custody. Please expand your risk factor disclosure under this heading
to disclose the
amount or percentage of cryptocurrency held in hot wallets. Please
also expand your risk
factor disclosure to discuss additional risks associated with the
growth in cryptocurrency
assets under custody.
Regulation of the cryptocurrency industry, page 69
11. Refer to the third sentence of the caption. The statement were
frequently not designed or
crafted with cryptocurrency technology in mind or with a sufficient
understanding of
cryptocurrency use cases does not appear objectively accurate or
relevant to the risks
described. Please revise accordingly.
12. Refer to your response to comment 2, in particular your statement that
your legal analysis
is reasonably designed to facilitate consistent application of
available legal guidance to
cryptocurrency to facilitate informed risk-based business judgment.
Please revise this
risk factor to clarify, if true, that your policies and procedures,
which you state do not
Vladimir Tenev
Robinhood Markets, Inc.
May 21, 2021
Page 4
constitute a legal standard, are intended to enable you to make
risk-based assessments
regarding the likelihood that a particular digital asset could be
deemed a security under
applicable laws, and are not legal determinations as to whether a
particular digital asset is
a security under the federal securities laws.
Risks Related to Our Class A Common Stock and this Offering
We will be required to issue additional shares of Class A, page 84
13. Please disclose that future issuances of Class B and Class C common
stock may be
dilutive to Class A stockholders.
The multi-class structure of our common stock will have the effect, page 88
14. Please disclose the percentage of outstanding shares that Class B
holders must keep to
continue to effectively control the outcome of matters submitted to
stockholders.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Our Business Model, page 114
15. We note your revised disclosure in response to comment 18. Please
address the following:
revise to disclose the average customer acquisition costs incurred
during each of the
periods presented in light of the disclosure that the costs
decreased 60% in 2020
compared to 2019;
provide an enhanced discussion of the correlation with these costs
and the decrease in
the average revenue payback period recognized in fiscal 2020 as
compared to fiscal
2019;
discuss in detail the improved efficiencies in the marketing spend
which contributed
to a decrease in the expenses, which resulted in an improvement to
the average
revenue payback period in 2020; and
address how the awarding of shares under the Robinhood Referral
Program and bank
linking rather than account approval decreased marketing spend and
improved the
revenue payback period.
Key Factors Driving Our Performance
Growing our Customer Base, page 119
16. We note your discussion of net cumulative funded accounts and the
significance of this
key performance metric to your business, as discussed throughout your
registration
statement. Please revise your disclosure to include a rollforward for
each period provided
of your net cumulative funded accounts, which should include but not be
limited to, a
FirstName LastNameVladimir Tenev
beginning balance of net cumulative funded accounts, newly funded
accounts during the
Comapany NameRobinhood
period, Markets,
churned accounts, Inc. accounts, and ending net cumulative
funded
resurrected
May 21,accounts.
2021 Page 4
FirstName LastName
Vladimir Tenev
FirstName
RobinhoodLastNameVladimir Tenev
Markets, Inc.
Comapany
May NameRobinhood Markets, Inc.
21, 2021
May 21,
Page 5 2021 Page 5
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Key Components of our Results of Operations
Revenues
Transaction-based revenues, page 121
17. We note your concentration of credit risk tables on pages F-14 and
F-49, and your
revisions in response to comment 25. Please tell us your basis for
redacting the identity of
an executing broker, on page F-49, from which you received
transaction-based revenues
in excess of 10% of total revenues during the period ended March 31,
2021.
Operating Expenses, page 122
18. We note your response to comment 31; however, we continue to believe
each component
(i.e., Brokerage and Transaction, Technology and Development,
Operations, Marketing,
and General and Administrative) should be expanded to provide a more
granular
discussion that would provide greater transparency into the material
components and
potential variability of such expenses. Where you have multiple
expenses within each
operating expense component, consider adding supplemental tabular
information as this
may facilitate a clear and comprehensive understanding. In this
regard, your disclosures
should:
identify and quantify the individually significant expenses
recognized within each of
your operating expense components;
quantify the change in each respective item during each period;
and
discuss the reasons for the increases or decreases in the specific
dollar amounts for
each expense identified.
Operations, page 126
19. We note your revised disclosures and response to the first bullet
point in our prior
comment 12. We understand, based on your response, the number of
funded accounts
with balances below zero appears to be insignificant to the aggregate
net cumulative
funded accounts and total receivables from users; however, the
provision (and charge-off
activity), as presented on page F-21 (Note 4 - Allowance for Credit
Losses) appears to be
quantitatively and qualitatively significant to your net income and
adjusted EBITDA.
Consistent with our comment above, expand your disclosure (here and on
page 130) to
provide a more granular discussion which will enable an investor to
understand the trends
relating to your provision and charge-off activity.
Quarterly Consolidated Statements of Operations, page 132
20. We note your response to our prior comment 11 and your revised
disclosures on page 22.
We understand the guidance under Item 302(a) of Regulation S-K;
however, if the
information is voluntarily provided we would expect such information
is material to an
investor and accordingly, it should be complete. Therefore, we are
reissuing our comment
in part. Please revise to present net income (loss) per share
information for all periods
provided.
Vladimir Tenev
Robinhood Markets, Inc.
May 21, 2021
Page 6
Business
Our Products
Robinhood Crypto, page 164
21. We note your revised disclosure in response to comment 39 regarding
the investments that
you are making in an effort to provide your customers with the ability
to deposit or
withdraw the seven traded cryptocurrencies into or from your platform
in the future.
Please revise to discuss in greater detail the key personnel,
partnerships and regulatory
approvals that you are investing in.
Robinhood Gold, page 165
22. Please revise to address the following as it relates to the Robinhood
Gold Subscription
activities:
provide further details of the margin program for the Gold
subscribers,
including whether any collateral is required on the initial $1000
borrowed and
whether interest is charged on this initial amount;
address whether you assess Gold subscribers for credit worthiness
ahead of granting
the $1000;
address your accounting for the first $1000 in margin borrowed by
each user; and
disclose the number and amount of margin loans outstanding
associated with these
users for each of the periods presented.
Management
Committees of the Board of Directors, page 190
23. Please discuss the extent of the Board s (or Audit Committee s)
role with respect to risk
oversight and cybersecurity. For guidance, refer to Item 407(h) of
Regulation S-K and the
Commission Statement and Guidance on Public Company Cybersecurity
Disclosures
(Feb. 26, 2018).
Description of Capital Stock
Voting Rights, page 213
24. Please briefly describe the matters on which Class C stockholders are
entitled to vote upon
as required by applicable law.
Underwriting (Conflicts of Interest), page 233
25. You state in the carryover risk factor on pages 87-88 that individual
investors may
FirstName LastNameVladimir Tenev
constitute a larger proportion of the investors participating in this
offering than is typical
Comapany NameRobinhood
for an Markets,
IPO. Please quantify the Inc.
percentage of the offering which you
expect to be
May 21,allocated for 6Robinhood customer participation.
2021 Page
FirstName LastName
Vladimir Tenev
FirstName
RobinhoodLastNameVladimir Tenev
Markets, Inc.
Comapany
May NameRobinhood Markets, Inc.
21, 2021
May 21,
Page 7 2021 Page 7
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Notes to the Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies
Revenue Recognition, page F-9
26. We note you have approximately $3.5 billion and $11.6 billion in
cryptocurrency assets
under custody as of December 31, 2020 and March 31, 2021,
respectively, and those
cryptocurrency assets are not recorded in your financial statements.
Please provide us
with your accounting analysis, along with citations to the
authoritative guidance you
used, to support your accounting treatment. Your response should
include, but not be
limited to, discussions of the following:
identification of who has legal ownership of the cryptocurrency;
discuss if the customer is constrained from selling or pledging
the
cryptocurrencies which are held in custody;
discuss if the customer is constrained in any way, or at any time,
from transferring its
cryptocurrency from the Company s wallets to their own wallet;
discuss whether the terms and conditions of the Company s
contract with the
customer, or state regulation, prevent the Company from directing
the use of and
obtaining substantially all of the remaining benefits from the
cryptocurrency held in
custody for customers; and
discuss if the terms and conditions make it clear that you, or
RHC, are not executing
customer transactions.
27. Refer to your response to comment 30. Please revise to disclose your
revenue recognition
policies for Robinhood Gold, proxy rebates, and the ACATS fees, and
include a clear
description of what the proxy rebates and ACATS fees represent.
Note 4 - Allowance for Credit Losses, page F-21
28. We note that operations expenses, as disclosed on page F-10, includes
the provision for
credit losses primarily in connection with unrecoverable receivables
due to fraudulent,
unlawful or otherwise inappropriate customer behavior. Please revise
to address the
following:
in regard to the accounts which have below zero balances at
December 31, 2020 and
March 31, 2021, disclose the amount of the allowance for credit
losses recorded on
these accounts at each of these respective dates; and
provide a discussion of your credit loss methodology used in the
determination of
your allowance for credit losses and ensure you provide the
disclosures required by
ASC 326, as applicable.
Note 11 - Mezzanine Equity, Common Stock and Stockholders' Deficit
Share-Based Compensation, page F-32
29. We note your revised disclosure in response to comment 48. Based on
the information
provided in your correspondence for the Pre-2019 Transactions as
well as the 2019
Tender Offer, it is unclear as to the reasons and basis for the
conclusion by the Company
Vladimir Tenev
Robinhood Markets, Inc.
May 21, 2021
Page 8
that a pattern of the cash settlement of immature shares and stock
options was not
established before the 2020 Tender Offer. Please provide us with a more
detailed analysis
supporting your accounting treatment and conclusion for the
aforementioned
transactions.
You may contact Marc Thomas, Staff Accountant, at (202) 551-3452 or
Hugh West,
Accounting Branch Chief, at (202) 551-3872 if you have questions regarding
comments on the
financial statements and related matters. Please contact J. Nolan McWilliams,
Attorney-
Advisor, at (202) 551-3217 or Sandra Hunter Berkheimer, Legal Branch Chief, at
(202) 551-
3758 with any other questions.
Sincerely,
FirstName LastNameVladimir Tenev
Division of
Corporation Finance
Comapany NameRobinhood Markets, Inc.
Office of Finance
May 21, 2021 Page 8
cc: D. Scott Bennett
FirstName LastName